We have a client wishing to make substantial PETs in excess of the nil-rate band. Insuring against the possible IHT liability is likely to be prohibitive.
Perhaps less commonly, the recipients of the PETs are different people to the beneficiaries under the donor’s will.
The will does not shift the burden of IHT flowing from failed PETs from the recipients to the estate. We appreciate the position that the recipients are principally liable for the IHT and if it remains unpaid after 12 months, HMCR can ask the executors to pay it and they would then have to rely on their right of recoupment against the recipients.
We are concerned to cover off the scenario of the recipients not being good for the recoupment, e.g. they had gone bankrupt.
Is there a way of protecting the client’s executors in this scenario? We had in mind our client making a deed of gift of 100% of the principal (with the recipient therefore being the 100% beneficial owner of the monies) with a retention of 40% to cover the IHT but are concerned that retention would be included in the client’s estate on death, i.e. only 60% of the principal being treated as a PET. Whilst we would consider this an unfair approach for HMRC to take as the whole mechanism is in place to ensure the easy and efficient payment of IHT on a failed PET, we wondered what other practitioners had considered doing in these scenarios?